City National Rochdale begins marketing mutual ILS fund

16th August 2017 - Author: Artemis

The City National Rochdale Select Strategies Fund (CNRLX), an industry loss warranty (ILW) focused ILS mutual fund has opened for commitments, as Royal Bank of Canada subsidiary City National Rochdale, LLC, part of City National Bank, has now started to market the fund to investors.As we’ve covered before, the City National Rochdale Select Strategies Fund is a U.S. 1940’s Act mutual insurance and reinsurance linked securities fund, organised as an interval fund, so able to offer regular but gated liquidity opportunities to investors.

The fund will follow a strategy of investing predominantly in industry loss warranty (ILW) contracts, as well as some other ILS or reinsurance linked contracts, having partnered with Iris Reinsurance Ltd. the collateralized ILS and reinsurance speciality underwriting entity of specialist ILS investment manager Cartesian Iris.

A closed-end interval fund, the City National Rochdale Select Strategies Fund targets raising up to a maximum of $500 million of assets in its first two years of operation, a sign that the ILW market is still only so large and it would be difficult for a fund to raise much more than that and deploy it, without having to offer the cheapest capacity in the marketplace.

“We’re excited to launch this fund and present this unparalleled opportunity to our clients,” commented Garrett D’Alessandro, Chief Executive Officer and Chief Investment Officer at City National Rochdale. “Achieving true diversification is quite challenging, but we believe we can achieve that with this new investment strategy. The goal will be to provide our clients with a new investment alternative that strives to produce returns that are above those of traditional investment grade fixed income and commensurate with equities, while not correlating with either during times of volatility.”

City National Rochdale currently manages over $33 billion in assets, so the addition of a $500 million ILS investment strategy is a reasonable addition to the funds under management.

However in this case the funds under management will perhaps benefit Cartesian Iris the most, with the Rochdale mutual fund acting as a sort of feeder into its strategies.

For City National Rochdale the fees it generates from a strategy where it does not really have to put significant effort into originating, analysing, underwriting and managing the portfolio, as Cartesian Iris are the reinsurance and ILS experts in this partnership, will be attractive. So the benefits of partnering up flow both ways here.

The mutual fund will seek to “capture natural event risk via Insurance Linked Securities (ILS),” the company explains, with industry loss triggers targeted due to their transparent, investor-friendly characteristics.

“We believe that ILWs offer targeted and transparent reinsurance risks that we project may generate attractive long term returns,” D’Alessandro said.

Cartesian Iris and its Iris Reinsurance vehicle are one of the only ILS investment managers who specialise in industry loss warranty (ILW) investment, hence for the manager this is a good opportunity to source capital from a new investor base.

Around 70-80% of the City National Rochdale Select Strategies Fund will be allocated to ILW’s during the peak hurricane risk season, according to the firm, with around 10-20% allocated to catastrophe bonds.

Some of the funds assets will be held in cash so that the managers can anticipate buying opportunities, which is important in the ILW market as there are often opportunities outside of the typical reinsurance renewal season.

It will be interesting to see how quickly the City National Rochdale ILW fund can attract investors, being a mutual fund it will have to report its assets quarterly. If it proves successful it could attract other mutual fund managers to look for ILS specialists to partner with, as it saves them having to hire the expertise in house while still benefiting from the increase in assets.